GBP to EUR Forecast

History of the GBP to EUR pair

The UK and the European Union have had a long historical relationship. The UK joined the European Economic Community in 1973 which was a key part of the formation of the European Union (EU) in 1993.

However, the UK was among a group of countries like Poland, Romania, and Sweden that failed to sign to the single currency. Their idea was that they needed their central banks to manage the movements of their local currency.

Historically, the euro has been criticized for restricting the independence of sovereign countries. For example, it is common for the ECB to hike interest rates when big countries like Germany and France are doing well while smaller ones are struggling.

The euro has outperformed the British pound over the years because of its role as the second-biggest economy in the world. The EU has a GDP of over $16 trillion, making it smaller than the US $23 trillion.

In addition, the GBP/USD has dropped because of the impacts of Brexit, which introduced some trade barriers between the UK and the EU. The GBP to EUR exchange rate has crashed by ~39% from its peak in 1999.

Latest GBP to EUR forecasts

The GBP to EUR price has been in an overall bearish trend since 2023. A likely reason for this is that the British economy is expected to have a slower recovery than most countries. In its yearly economic forecast, the International Monetary Fund (IMF) estimated that the British economy will have the slowest recovery in the G20. It will even underperform Russia, which has been hit hard by western sanctions.

Further, the UK national debt has surged in the past few years, especially during the global pandemic. Public sector net debt to GDP has risen to 97.5% from 80.3% in 2018. While that percentage is lower than in countries like the US, it is growing at a faster rate.

BoE and ECB decisions

The GBP to EUR has crashed even as the Bank of England (BoE) has become more hawkish than the European Central Bank (ECB). In February 2023, the BoE increased interest rates by 0.50% to 4%. The European Central Bank (ECB), in its part, hiked by 0.50%, bringing the main rate to 2.5%.

The main catalysts for the GBP/EUR price in the next few months will be the recovery of the British and European economies and the actions of the ECB and GBP. The two central banks have committed to continuing with their interest rate hikes in the coming months.

These policies are intended to fight inflation, which remains significantly high in the EU and UK. In the UK, the headline consumer price index (CPI) rose by 9.2% YoY in December last year, which is significantly higher than the BoE’s target of 2%.

In the European Union, inflation has also dropped at a faster pace than expected because of the falling natural gas prices, which have crashed to the lowest level since 2021. Prices dropped because of the relatively warmer winter and increased imports of Liquified Natural Gas (LNG).

While the ECB and BoE have been committed to continuing hiking rates, the ECB has a longer runway to tighten since the European economy is doing better. In addition to this, the energy crisis that was feared did not happen. Therefore, from a fundamental perspective, the euro is going to be in a better position than the sterling in 2023.

In addition, the European economy is expected to outperform the UK. According to the IMF, European economies like Germany, France, Italy, and Spain will eke a small economic growth in 2023 as the UK contracts.

GBP/EUR technical analysis

The GBP to EUR exchange rate has been in a general bearish trend in the past few months. This trend has remained below the descending trendline shown in black, which connects the highest points since May 2022. The pair has crashed to the 23.6% Fibonacci Retracement level and also dropped below all moving averages.

Therefore, the outlook of the pair will likely continue falling in 2023, with the next level to watch being at 1.0840, the lowest point in 2022.

Transferring GBP to EUR

The GBP and EUR are among the most common currencies globally. A good way to look at this is to consider the value of trade that flows between the UK and the European Union.

The UK exported goods worth over 267 billion pounds to the EU, which is equivalent to 42% of all exports in 2021. On the other hand, the EU’s exports to the UK were worth over 292 billion pounds in the same year. In June 2022, UK’s export to EU countries jumped to a record high of 17.4 billion pounds.

As a neighboring region, the UK hosts many European nationals and vice versa; this involves a huge amount of investments. For example, in 2020, EU companies invested over 740 billion in the UK.

The cost of sending GBP to EUR is relatively small because of the rising competition in the money transfer industry. To cite an example, sending £1,000 from the UK to Spain via XE will cost you zero in terms of commission.

Wise charges a commission of £4.20 but offers a better exchange rate. While XE has no commission, the recipient receives €1,103 while the Wise recipient receives €1,111. Therefore, it is important to compare prices before making a money transfer transaction.

Is it a good time to buy GBP with EUR?

The GBP to EUR exchange rate was trading at 1.1158, the lowest point since September 28 last year and this means that it takes 1.1158 euros to buy 1 pound. This price is about 8.4% below the highest level in March 2022.

Therefore, the recent decline means that the sterling is losing its value against the euro. In other words, if the pair drops to our target of 1.0852, it means that it will be about 2.90% cheaper. At the current exchange rate, 100 pounds is worth about 112.6 euros. If the sterling drops to 1.0852, 100 pounds will be worth about 108 euros.

GBP to EUR 6 month forecast- next 6 months – analysis

Based on the macro and technical analysis, the outlook for the GBP to EUR in the next six months is bearish. Investors will mostly prefer buying the euro compared to the sterling. Therefore, we believe that the sterling will drop to about 1.0852.

However, a move above the important resistance level at 1.1461 will invalidate the bearish view since it will send a signal that there are more buyers in the market.

The key drivers for this estimate will be the decisions by the BoE and the European Central Bank. These banks will likely deliver several hikes in the next six months and then take a strategic pause.

Some analysts believe that these central banks could signal potential cuts if recession risks materialize. The other potential catalyst will be related to Brexit as the Northern Ireland issue remains.

Further, the ongoing war in Ukraine will have an impact on the GBP to EUR pair. A surge in natural gas prices will disrupt the economic recovery of the UK and the European Union.

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